For those who don’t know the history of fiat money, at some point in history the developed nations decided that the richest country in the world (based on gold) would be the one which would become the world reserve currency. As the world reserve currency, other countries (44 at the time, 66 currently) would peg the value of their currency to the world reserve currency.
In 1944, while Europe was rebuilding from World War II, it made sense to remove the former reserve currency (the British Pound) and replace it with the US dollar which was much more stable. At the time, the US dollar was pegged to gold and was a very stable currency.
But then, the 1970’s hit, and in a moment of desperation, the US left the gold standard. The IMF at the time decided this was fair as almost no country could maintain the gold standard as the world population grew. But now, 50 years later, the tides are beginning to turn.
Is the IMF Removing the US as the Reserve Currency?
Many countries which have their value currently pegged to the dollar do so because they trade heavily with the United States. The most obvious being the Caribbean nations and China.
In 2020 and 2021, during the COVID-19 pandemic, the United States printed well over a trillion dollars. They printed so much money in fact, that one in every 5 dollars in the United States has been printed in the last 2 years. This means that citizens of the US can expect 20% inflation rates…which is exactly what is happening right now.
But it isn’t just happening in the United States, all the countries which are pegged to the dollar are also experiencing this type of inflation and it has not gone unnoticed. While there have been rumors that the IMF is going to dump the dollar for years, it hasn’t actually happened yet.
But what has happened is that countries around the world have come together to make their own reserve currency. Obviously, it isn’t the dollar.
BRICS Reserve Currency
As a result of the Russian aggression in Ukraine, in February 2022, much of the world cut off Russia from their financial systems. While they thought this would stifle the country, it actually did the opposite. Under the removal from the SWIFT system, the Russian Rubble has actually soared, becoming stronger than ever and avoiding the inflation which riddles American and European economies.
This good fortune with the Rubble has not gone unnoticed, and many countries have joined Russia in the suggestion of creating a new reserve currency. The most notable are China, Brazil, India, and South Africa, however Egypt, Turkey, and Saudi Arabia have also mentioned that they will join if this new currency is created.
Those of you thinking this is crazy should know that this isn’t just because of the Russian aggression and SWIFT banking regulations, as it appears Russia has been preparing for to try and undermine the dollar for years now. Reports show that Russia and China both have been purchasing and hoarding large amounts of gold since 2014, suggesting that the BRICS currency produced may be backed on some basis by precious metals.
What this Means for the Future of the United States
The US possibly losing its status as the IMF reserve currency is bad news. But the worse news is that China has joined Russia in pursuit of creating a new world currency, which is bad news because China is one of the biggest countries who currently peg their currency to the US dollar.
Additionally, China and Russia have begun a new economic relationship, meaning people in the United States may start to cry for a ban of trade with China as well. Unfortunately this isn’t possible as the US does more trade with China than any other country in the world.
This means that if China becomes part of the new currency that Russia is creating, if the US wants to continue trading with China (which they don’t really have a choice) they will need to buy large amounts of this currency to make it possible. Therefore if the currency is created, BRICS will likely have an automatic customer that will be forced to sink millions off the bat and they are using this fact to their advantage.
Even if the US is able to stop purchasing Chinese products, this is bad news for consumers and businesses everywhere. Not only do popular clothing companies like H&M and Fabletics have their factories in China, but many of the goods Americans have come to enjoy for cheap are only possible because they come from a country with lower wages. Therefore Americans should prepare for the prices of goods to skyrocket and to change their consumer lifestyles.
This is dangerous because the prices already have skyrocketed due to the falling value of the dollar. If Russia and China truly go through with their pegged currency, you don’t even want to know how low the dollar will tumble.
What Can You Do?
Sadly, there isn’t much you can do about this bad news. It’s just that, bad news. It’s the result of poor economic policies, the large scale printing of money, and the failing government system in the United States.
The only thing you can do is invest in a currency that is borderless and doesn’t require government backing like Bitcoin or Ethereum. Keeping your money in one of these currencies means you will not lose everything when the US dollar crashes. Know however that cryptocurrencies aren’t 100% safe either, and you could still lose your entire investment for other reasons.
Not to mention that if the US crashes entirely (as typically happens to Empires in the words of Putin) and China or Russia are the new world powers, these countries despise Bitcoin and it may end up being difficult to cash out. Either way, this is all years down the line, or so we hope, but in the meantime it’s important to realize that the US dollar is not an asset you should be keeping your wealth in.